|SUp until this year, distillate prices
generally exceeded gasoline prices for only very brief periods. But since last fall, we have seen the
unprecedented situation in which distillate prices exceeded gasoline until late
|–In past years, gasoline prices only exceeded
heating oil and diesel prices in some fall and winter months.
|–In fall 2000, distillate inventories were low,
and distillate prices rose. The winter
proved cold, and resulted in one of the longer periods when heating oil
prices exceeded gasoline, until the fall of 2004 and this year.
|SGasoline prices again rose above distillate
this September when the hurricanes damaged U.S. refineries on the Gulf Coast.
Gasoline supply concerns were more immediate than distillate concerns. When Katrina and Rita hit, gasoline stocks
were relatively low and distillate stocks relatively high because of the
summer prices. The large and sudden loss of gasoline production caused
gasoline spot prices to spike, especially on the Gulf Coast.
|S This switch in relative prices does not mean
that the distillate supply challenge is less than that for gasoline. As will be shown later in the presentation,
the distillate supply situation is deteriorating, and the stock and price
picture will change as a consequence.